Bookmark this site
Mortgage industry milking homeowners before foreclosure, critics say
“I have had people in the [servicing] industry tell me that their best customer is the one who is always 30 days late,” said Howard Glaser, a former official at the U.S. Department of Housing and Urban Development, and the president of the Washington, D.C.-based Glaser Group, a mortgage industry consulting firm.
“If you can keep the borrower on the hook and paying late fees, that is where the profit is in servicing,” Glaser said. “Otherwise, if everybody is paying on time, there isn’t a tremendous amount of profit.
Moe Bedard, president of Loan Safe Solutions, a California-based mortgage auditing and loan processing firm, said there is so much money to be made on delinquent loans that servicers are willing to risk that they will lose servicing fees on the percentage of homes that do go into foreclosure.
“The goal is not to have the home foreclosed on,” he said. “It is to rack up as many late fees as you can because of this big foreclosure mess and then save the home at the last minute, charge them 50 grand and put it on the back of the loan. You multiply that by thousands of loans that are doing this, and you see the profit that can be made.”
“Again,” he added, “it is a roulette theory: Some are going to pay off, and some are not.”
With housing prices declining in neighborhoods hard hit by the foreclosure crisis, the question on many real estate minds is: Why are banks and investor-controlled trusts not doing more to cut their losses by working out loan modifications?
The answer, according to some analysts, is that mortgage servicers are calling the shots. And although the servicers have a legal obligation to maximize revenue for the owners of the mortgage-backed security, critics of the industry claim that servicers’ financial interests are often in conflict with the investors they are ostensibly working for.
Read more from Alex Ulam and the Read Deal
